Despite macroeconomic concerns, auto sales in the United States are likely to stay strong due to rising demand. Given the industry’s growth prospects, fundamentally strong auto stocks AB Volvo (publ) (VLVLY), Isuzu Motors Limited (ISUZY) and Volkswagen AG (VWAGY) might be worth buying.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
In January, the number of new vehicles sold in the United States was 1,082,620 units, up 2.2% year-over-year. This increase in the sales of new vehicles shows a favorable trend in the automotive industry, reflecting increased customer confidence and demand.
According to data from the Alliance for Automotive Innovation, electric vehicle (EV) sales in the United States increased significantly between 2021 and the third quarter of 2023. Sales grew from 125,000 in the first quarter of 2021 to 375,000 in the third quarter of 2023, marking the first time annual EV sales surpassed 1 million and 58% higher than the first quarter of 2022.
The global automotive industry is expected to grow at a 4.4% CAGR until 2032, owing to increased electric car demand, autonomous driving advancements, emerging markets, sustainable transportation initiatives, and stricter emission laws.
Considering these conducive trends, let’s look at the fundamentals of the three Auto & Vehicle Manufacturers stocks, starting with number three.
Stock #3: AB Volvo (publ) (VLVLY)
Based in Gothenburg, Sweden, VLVLY is a global manufacturer of trucks, buses, construction equipment, and engines, offering a diverse range of products under brands like Volvo, Renault Trucks, and Mack. The company also provides services such as financing and maintenance and has strategic partnerships for autonomous trucks and battery development.
On January 29, 2024, VLVLY announced an all-new heavy-duty truck platform for the North American market, as well as a new heavy-duty vehicle range for Europe, Australia, and Asian and African countries. New energy-efficient models, including trucks powered by electricity and renewable fuels, will reduce CO2 emissions and bring the company closer to its goal of having a net-zero emission product range by 2040.
VLVLY’s trailing-12-month ROTA of 7.39% is 52.7% higher than the industry average of 4.84%. Its 9.01% trailing-12-month net income margin is 51.3% higher than the 5.96% industry average.
In the fiscal fourth quarter, which ended December 31, 2023, VLVLY’s net sales and gross income grew 10.3% and 24.5% year-over-year to SEK148.12 billion ($14.21 million) and SEK38.71 billion ($3.71 billion). The company reported an adjusted operating income of SEK18.38 billion ($1.76 billion), up 51% from the prior-year quarter. Moreover, its EPS increased 81.9% from the previous year’s quarter to SEK5.93.
Analysts expect VLVLY’s revenue to come in at $47.54 billion for the quarter ending December 2024. Its EPS is expected to come in at $2.05 for the same period. The stock has gained 32.8% over past year to close the last trading session at $24.89.
VLVLY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VLVLY has an A grade for Stability and a B for Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #11 out of 53 stocks. To see additional POWR Ratings for Growth, Value, Momentum and Sentiment for VLVLY, click here.
Stock #2: Isuzu Motors Limited (ISUZY)
Based in Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy and medium duty trucks and buses, and light-duty trucks; passenger pickup vehicles, pickup trucks, and SUVs; and marine and industrial engines.
ISUZY’s trailing-12-month ROTA of 5.24% is 24.2% higher than the 4.22% industry average. Its trailing-12-month ROTC of 8.51% is 37.5% higher than the 6.19% industry average.
ISUZY’s net sales for the nine months ended December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($17 billion). Additionally, its operating income increased 28.1% year-over-year to ¥253.56 billion ($1.70 billion). Also, its profit attributable to owners of the parent increased 26.7% year-over-year to ¥159.42 billion ($1.07 billion). Its EPS increased 27.1% over the prior year quarter to ¥206.31.
The consensus revenue came in at $23.29 billion for the fiscal year ending March 2024 represents a 141.9% increase year-over-year. ISUZY’s shares have gained 22.1% past three months to close the last trading session at $13.68.
It’s no surprise that ISUZY has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Quality and Stability. It is ranked #7 in the same industry.
Beyond what is stated above, we’ve also rated ISUZY for Growth, Sentiment and Momentum. Get all ISUZY ratings here.
Stock #1: Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific region. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
VWAGY’s trailing-12-month levered FCF margin of 11.27% is 105.8% higher than the industry average of 5.47%. Its 4.67% trailing-12-month CAPEX / Sales is 52% higher than the 3.07% industry average.
During the third quarter that ended September 30, 2023, VWAGY’s sales revenue increased 11.6% year-over-year to €78.85 billion ($86 billion). Its operating result improved 14.9% from the year-ago quarter to €4.89 billion ($5.34 billion), and its earnings after tax amounted to €4.35 billion ($4.74 billion), up 103.6% year-over-year.
Street expects VWAGY’s revenue to increase marginally year-over-year to $340.66 billion for the year ending December 2024. Its EPS is expected to come in at $5.38 for the same period. Shares of VWAGY have gained 15.9% over past three months to close the last trading session at $14.29.
VWAGY has an overall B rating, equating to a Buy in our POWR Ratings system.
VWAGY’s is ranked #8 in the same industry. It has an A grade for Value and a B for Growth and Stability. To see additional VWAGY’s ratings for Sentiment, Momentum and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VWAGY shares were trading at $14.38 per share on Friday afternoon, up $0.09 (+0.59%). Year-to-date, VWAGY has gained 10.79%, versus a 5.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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